Affiliation:
1. Emory University, Department of Economics (email: )
2. Boston University, Department of Economics, and National Bureau of Economic Research (email: )
Abstract
We develop a Ricardian model of trade where countries innovate ideas that diffuse globally. Our key result provides necessary and sufficient conditions for innovation and diffusion to generate max-stable Fréchet productivity, linking generalized extreme value expenditure to knowledge flows. Innovation makes a country technologically distinct, reducing its substitutability with other countries. In contrast, diffusion generates technological similarity, increasing head-to-head competition and substitutability. In an innovation-only model where countries do not share ideas, productivities are independent across countries and expenditure is CES. Consequently, departures from CES reveal diffusion patterns. (JEL F11, O31, O33, O41)
Publisher
American Economic Association
Subject
Management, Monitoring, Policy and Law,Geography, Planning and Development